How changes in medical debt reporting could raise your credit score this summer

May 31, 2022

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This summer, the three major credit bureaus are making some big changes where medical collections are concerned. Equifax, TransUnion and Experian have announced that they will delete 70% of medical collections from consumer credit reports by July 1, 2022.

The credit bureaus will also stop adding new, unpaid medical collections to credit reports until those debts are 1 year old. And in 2023, medical collections under $500 will no longer show up on consumer credit reports.

Collection accounts can damage your credit score, even after you pay or settle the debt. So if you have medical collection tradelines on your credit report right now, the credit bureaus’ joint announcement likely comes as good news.

Read on to discover why the credit bureaus have decided to remove so many medical collections from consumer credit reports. Plus, you’ll gain insight into how these upcoming credit report changes might affect your personal credit score.

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In This Post

What medical debt collections looks like in the United States

Millions of American adults struggle with medical debt and the negative impact those obligations can have on their credit scores. Unfortunately, medical collections can make it difficult (and sometimes impossible) for people to access new financing when they need it. Medical collections on credit reports might even make it harder for some people to land a job.

Below are several eye-opening statistics that explain the problem of medical debt in the United States.

  • One in three American adults has medical debt.
  • Most medical collections on credit reports are for debts under $500.
  • 58% of all third-party collections on credit reports were for medical debt in 2021.
  • Two-thirds of medical debts stem from a short-term or one-time medical expense (not a long-term pattern of bad credit behaviors).

Why are the credit bureaus removing 70% of medical collections?

Consumer credit reports and credit scores provide credit card issuers and lenders with a lot of valuable information. These tools help lenders and others predict risk, and that can help keep the cost of credit at a more affordable level for people with good credit.

When negative information shows up on your credit report (i.e., collection accounts, late payments, etc.), lenders may feel that doing business with you is a bigger risk. Even a medical collection on your credit report could damage your credit score and make it harder for you to qualify for financing.

Credit scores predict the likelihood that you’ll pay a credit obligation 90 days late or worse in the next 24 months. Yet research (warning: PDF link) from the Consumer Financial Protection Bureau (CFPB) shows that medical collections may be less effective at predicting future credit behaviors.

People with paid medical collections on their credit reports are less likely to make late payments than other people with the same credit score. Per the CFPB, these consumers should have credit scores that are around 20 points higher on average. Therefore, it seems that medical collections may not be as accurate at predicting future defaults compared with other types of collection accounts.

Billing errors are also common with medical bills, and patients are the ones who pay the price when mistakes happen. Even if a medical collection on your credit report comes from a billing error, it could still drive your credit score downward. And if you’ve ever had to play go between with a billing department and a medical insurance provider, you know how difficult it can be to get these billing mistakes fixed.

Because of the problems such as those mentioned above, the credit bureaus have been under pressure for years to update credit reporting practices. And the COVID-19 pandemic has only made medical debt issues more pressing for many people. As a result, all three credit bureaus have announced medical credit reporting changes to “help people across the United States focus on their financial and personal wellbeing.”

Will your credit score improve?

(Photo by Hero Images/Getty Images)

If a credit bureau removes a medical collection from your credit report this summer, there’s a chance that your credit score may improve. Yet how much improvement you see (and whether your credit score increases at all) depends on several factors.

Let’s say you have a credit report that’s clean other than a few small medical collections. If a credit bureau removes those negative medical debts and you’re left with a credit report containing only positive information, you might see a meaningful bump in your credit score. People who see recent medical collections removed from their credit reports might also experience more upward credit score movement. (New negative accounts tend to hurt your credit score more than older derogatory items.)

On the other hand, if an older medical collection comes off your credit report, the impact of the removal might not be as significant. And if a credit bureau removes a medical collection but there’s still other negative information on your credit report (i.e., late payments, charge-offs, non-medical collections, etc.), you might still have a bad credit score after the adjustment.

You can use the free FICO Score Estimator to get an idea of how the removal of a medical collection might impact you personally.

Bottom line

Equifax, Transunion and Experian have announced major changes to how medical debt will be included on consumer credit reports starting July 1, 2022. The shift may be good news for consumers with medical collections, but it’s still important to work hard and keep your credit in the best shape possible across all factors.

As you improve your credit, you may be able to enjoy many financial benefits, including a chance to qualify for the best credit cards available and the perks that come with those offers.

Featured photo by Westend61/Getty Images.

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